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Essay on India’s Economic Development and Population Growth

We now have the provisional population totals for 2001 Census and the first thing that strikes us is that we went wrong. In February 2001, we have a population of 1.027 billion. But there were earlier projections that stated we would touch 1.027 billion in 2002. So the projections have gone wrong ad we probably touched the billionth mark almost a year before we officially did so. Someone other than Astha Arora should have become famous.

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The decadal population growth for 1991-2001 is 21.34%, implying an annual average growth rate of 2.134%. This is of course an annual average growth rate for the decade as a whole and is not terribly pertinent. What is much more important is hat the growth rate is now, say in 2001. according to earlier projections, it was supposed to be 1.55%. But because we went wrong in the earlier projections, it is probably still around 1.6%.

India’s greatest problem is population growth. So runs the argument in most text books on the Indian economy. Had it not been for population growth, India’s per capita in come would have been higher than the present figure of 450 US dollars. Per capita national income is a ratio. We have national income in the numerator and population in the denominator. Ceteris Paribus, or every thing else remaining constant, a lower population in the denominator and population in the denominator boosts per capita income. Let’s assume that in the next twenty years, real national income in India grows at 7.5%. If the population rate of growth is 1.5%, that translates into a per capita income growth of 6%. But if the population rate of growth 2%, that translates into a per capita income growth of only 5.5%. That may may seem like a small difference, but compounded over a period of time, the difference this makes to per capita income is considerable. If the population growth rate slows down, the per capita income will increase faster. The percentage below the poverty line will decline faster.

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A Fallacy

There is a fallacy in this argument. Or stated more accurately, there is an assumption in this argument and that assumption cannot be left implicit. It must be made explicit. It is presumed that the population that not disappears makes no contribution to national income. The denominator declines, but the numerator is left untouched. This may or may not be true, but is an assumption nonetheless. Thanks to Malthus, as refined by Coale and Hoover and thanks to developmental economies harping about disguised or not-so-dis-guised unemployment, we presume that a large chunk of the population makes no contribution to national output. The marginal product is zero. That need not be the case. Had that been the case, ethics apart, the best way to increase per capita income would have been to encourage more murders.

Why is a large population a burden? Because we won’t be able to feed so many mouths. India produces 2890 kilos of paddy per hectare and 2580 kilos of wheat per hectare. China produces 6060 kilos of paddy per hectare and France produces 7600 kilos of wheat per hectare. If our agricultural productivity levels can be improved, we can easily sustain double the present population. A large population exerts pressure on land in general, as opposed to agricultural land. Really? India has a density of 324 people per square kilometer. Hong Kong seems to be functioning quite well with a density of 6946 per square kilometer. For the record, Chandigarh has not collapsed with the density of 7903 per square kilometer.

Nor is the more general point about availability of natural resources an issue. Hong Kong again is the obvious, though not the only, example. We tend to confuse our inability to provide services like education, sanitation, power, roads drinking water or medical services with a population problem. This is true of urban as well as rural areas. Yes, there are public governance problems and a large population aggravates them. Yes, there are poverty and unemployment problems and a large population aggravates these as well. But the basic problem is with lack of public governance and economic growth. Let us not blame it on population.

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The Kerala Experience

As income increass, population growth does tend to slow down. This is the demo graphic transition argument of birth rates dropping eventually, after death rates drop because of improvements in medical facilities. The 1981 Census showed such a slowing down in Kerala. For years, economists debated the replication of the Kerala experience elsewhere in India, without indulging in the coercive models of China. The 1991 Census showed such a slowing down in Tamil Nadu, but it wasn’t quite a replication of the Kerala experience. The slowing down in Tamil Nadu owed less to increased per female literacy and availability of potable water. For years, population policy in India was equated with a contraceptive policy (India, paradoxically, was the first country in the world to introduce a family planning policy) and this didn’t work. Instead, these determinants of population growth are much more important, coupled with NGO involvement, which helps disseminate information. The 2001 Census has shown a slowing down of population growth in Andhra Pradesh.

If you have a map of the findings of the 2001 Census in front of you, you will notice the following. Let’s leave out places like Delhi, where population growth is significantly affected by migratin. (Perhaps this is true of Haryana and Chandigarh as well.) Let’s also leave out States like Arunachal Pradesh, Meghalaya, Nagaland, Manipur, Mizoram and Sikkim, as they belong to special categories and the bases are low. Among major States it then transpires that there isn’t a  major problem in Kerala, Tamil Nadu, karnataka, Andhra Pradesh, Orissa, West Bengal or Himachal Pradesh. (The deteriorating sex ratio, especially in the 0-6 age group, is a separate issue.) The population growth there is slowing down. Chhattisgarh, Uttaranchal, Punjab and Assam also don’t provide much cause for worry. But population rates of growth are high in Gujarat, Maharashtra and Jharkhand, higher in Madhya pradesh and Rajasthan and Bihar, apart from Jammu & Kashmir. That indeed is the point. There is not all-India based population problems any more and there is almost a North-South divide. There are significant inter-State and inter-regional differences, with differences not only amog States, but also among districts within the same State. We do not yet have district wise figures from the provisional population totals, but they will eventually be available. To the extent that population policy is important, it thus needs to concentrate on specific States and within these States, on specific districts.

The poor and backward States of India have conventionally been referred to as the BIMARU (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh), with a pun on the word Bihar. Bihar now has Jharkhand, Madhya Pradesh now has Chhattisgarh and Uttar Pradesh now has Uttaranchal. As the earlier identification indicates, the population growth problem is a serious one in the undivided BIMARU States and in Gujarat, Maharashtra and Haryana.

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Disparities in Growth

However, post-1991 reforms, disparities in growth across States have increased and will increase even further. In States like Gujarat and maharashtra, real State domestic product has grown at rates of 6% and more and this has beneficial effects on poverty (percentage of population below the poverty line or head count ratio) and unemployment. But among the BIMARU states, real State domestic product has only grown at around 3% in Bihar and Uttar Pradesh (and in Orissa among the non-population growth has thus contributed to per capita income growth rates of 1 to 1.5%. There have thus been limited beneficial effects on poverty and unemployment. The debate about the link between per capita income growth and declines in the poverty ratio (head count ratio or percentage of population below the poverty line) has hopefully been resolved. Post-1991, this debate took place in the absence of any data, since the last NSS (National Sample Survey) large sample dated to 1993-94. The NSS large sample figures of 1999-2000 are now available. Subject to minor problems of data incomparability, at an all-India level, they show a drop in the poverty ratio from 36% in 1993-94 to 23% or 26% in 1999-2000. (23% is according to one criterion, 26% according to another.)

The relationship between population growth and economic development is a two-way one, even though we sometimes tend to forget one part of the relationship. In the classic demo graphic transition sense, an increase in income tends to bring down birth rates. In the 1991 Census, among the major States, crude birth rates were sus, among the major States, crude birth rates were more than 30 per thousand in Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh.) and as I have argued earlier, a large population can also contribute to economic growth and a negative correlation between the two is not necessarily axiomatic. In fact, in an all-India sense, the country is clearly going through a period of demographic transition now. The crude birth rate has dropped. But babies who were born twenty or twenty-five years ago, are not entering the labor force. Stated differently, the percentage of population in the productive age-groups in in creasing and the dependency ratio is declining.

Paul Krugman

Before the East Asian currency crisis, there was a lot of talk about the East Asian miracle, although that phrase is somewhat unpopular now. Several people have suggested that an economist named Paul Krugman predicted the crisis. Not quite. In his 1994 article in Foreign Affairs (not the later 1998 one), Paul Krugman argued that growth in East Asia came about primarily through input increases, not through productivity increases can occur because of increases in labor and capital, sometimes referred to as extensive growth. Or output in creases can occur with same inputs of labor and capital, if the productivity with which these inputs are used increases, sometimes referred to as intensive growth.

Once one take away the effect of increases in capital and labor, the residual growth is referred to as total factor productivity (TFP) increase. Krugman thus argued that there was little evidence of TFP growth in Eat Asia. Growth happened becuae of increases in capital (based on high savings rates) and labor inputs. Sine there was a limit to how much these could be increased, East Asian growth must eventually slow down. That was the essence of the argument. my intention is not to discuss TFP, Krugman or East Asia.

I only want to point out that there are some other studies (other than Krugman’s) that have tried to decompose growth in East Asia. And these suggest that the demographic transition (drop in dependency ratio) contributed around 2% to real national income growth in East Asia. At an aggregate level, India is entering this demographic transition cycle now and this is a cycle that will last for the next twenty or thirty years. After that, it will plateau out, as it did in East Asia. The point is that such demographic transition can add 2% to real national income growth in India also, in the years leading income growth in India also, in the years leading up to 2020 or 2030.

However, two conditions have to be satisfied. First, jobs have to be found for these people. Second, these people have to possess the requisite skills, for which, the literacy rate is a useful indicator, although it is legitimate to argue that broader indicators of human development should be considered. Let us consider the second point first.

The Literacy Scene

In the 1991 Census, we had a literacy rate of 52.2%. In 1951, we had a literacy rate of 18.3%. So over a period of 40 years, te literacy rate improved by 34% or 0.85% per year. In 1997, the National Sample Survey (NSS) collected some data on literacy in the course of its 53rd round and arrived at a figure. From 52% in 1991 to 62% a year. How is that possible, when the track record has been 0.85% a year? After all, NSS surveys are not designed to capture data on literacy. No one disputes that the census is designed to capture data on literacy and we now know that in 2001, the overall literacy rate is 65%. This is an improvement of 1.3% a year and is not out of synch with the NSS figure for 1997. There are indeed people who argue that definitions of literacy don’t capture much, they have no functional tests. True, but that is neither here nor there. The definition hasn’t changed much. And even if the definition is unsatisfactory, as long as is does not become more unsatisfactory, an improvement is an improvement. Surely, that cannot be denied.

What has changed since 1991 so as to make such improvements believable, in defiance of earlier trends? Without getting into details, I suspect that two changes have been important. First, government-administered delivery of primary education has become more decentralized and therefore, more accountable, the Education Guarantee Scheme in Madhya Pradesh being one example. Contrary to popular perception, at the primary level, the problem is not that accessible schools don’t exist. The problem is the quality of education delivered there. Second, there has been considerable NGO (non-government organization) involvement and this too, makes the delivery of education more flexible. We should be headed for an overall literacy rate of around 85% 2015.

Job Growth

I have tried to argue that we don’t need to worry about the population problem if we can solve the literacy (human development) and job growth problems. Let me turn to job growth now. Clearly, the answer does not lie in jobs in the government sector, including the public sector. Provided labor laws are made more flexible in the private organized manufacturing growth does not translate into employment growth. Part of the answer also lies in employment growth in the services sector, conventionally perceived to be more labor intensive than manufacturing. Part of the answer also lies in the agricultural sector, with agriculture being interpreted as rural industries and services and not just narrow crop and livestock output. For that to happen, agricultural reforms (removal of inter-State restrictions, improvement in rural infrastructure, phasing out of controls on output sales and prices, end of inefficient subsidies on inputs, opening up of futures markets, corporate sector involvement in extension services and credit, banking and insurance) need to happen. Unfortunately, despite what has happened since 1991, agricultural sector reforms haven’t been implemented. Even talking about them, at the government level, is of recent vintage.

In conclusion, population growth is not per se a problem. Economic growth is indeed a problem. In that sense, population growth becomes a problem if reforms don’t happen. And there is also an inter-State dimension to this. Madhya Pradesh and Rajasthan have begun to climb out of the BIMARU fold. But what happens in Uttar Pradesh 9at least the Eastern part), Uttaranchal, Assam (the rest of the North-East also), Orissa, Bihar, Jharkhand and Jammu & Kashmir? Given the physical infrastructure there, extrapolation of present trends doesn’t suggest an enormous explores doesn’t suggest an enormous explosion in manufacturing activity there. Given the social infrastructure there, extrapolation of present trends doesn’t suggest an enormous explosion in the service sector there. Migration cannot be a large-scale solution. At least in some of these states, agriculture and agricultural reforms hold the key. And that is primarily a State-government subject. Thanks to what has happened since 1991, the focus of policy change is now at the level acted positively? There in lies the tragedy. Let’s not blame population growth for that.

By
Bibek Debroy
Director, Rajiv Gandhi Institute for contemporary Studies, New Delhi

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